Gauss Portfolio Review: 10 March 2021

Portugal

Gauss is the portfolio up for review this morning.  With a rising market, fewer securities are showing up as a Buy.  While I think the Relief Bill will help the stock market move forward, I’ll continue to take a conservative approach with the Gauss as you will see in the following review.

The management model used for this Relative Strength portfolio is designed to reduce portfolio churning.

Gauss Investment Quiver

Below is the current investment quiver for the Gauss.  As you can see by the $44,000 in cash, this is still a conservative portfolio.  I have two Buy orders set as you will soon see.

Gauss BHS Recommendations

Using the BHS model and the maximum number of assets set to five, only two Buy orders are recommended.  There are several Hold and two Hold? recommendations.  The BHS model is telling me to be cautious.

Buy orders are set for VOE and VBR.  I think both orders were struck while I was writing this review.

Gauss Manual Risk Adjustments

Before getting into the recommendations, note a few settings.  In the Position Sizing (Auto) worksheet I adjusted the SD Multiplier to 0.88 so the Stop Loss percentage for VTI comes in at 8.0%.  This adjustment impacts the number of shares recommended when a Buy order is given.  If you are willing to tolerate a higher Stop Loss percentage for VTI, then raise the SD Multiplier value.

The second setting does not show up on the following worksheet.  I set the maximum trade position risk to 2.0% on the Auto worksheet so the maximum portfolio risk is 10%.  In the following worksheet it shows up as 8.78%.  Even 8% or 9% is higher than I prefer, but I counter this higher risk by setting up TSLOs for the different securities.

To reduce portfolio churning, I’ve been following these recommendations for setting Trailing Stop Loss Orders (TSLOs).

• If the recommendation is Hold?, set the TSLO at 1/2 the recommended value.  For example, set the TSLO for VTI to 4.0%.
• If the recommendation is Hold, set the TSLO at 3/4 the recommended value.  For example, set the TSLO for VB to 3/4 x 9.5% = 7.1% or rounded to 7.0%.
• If the recommendation is Buy, and the portfolio already holds shares, set the TSLO at the recommended percentage.  For example, set the TSLO for VOE to 9.5%.  Round to the nearest percentage if the broker does not permit setting decimal values.

Gauss Performance Data

While the Gauss lags the VTHRX benchmark when using the Internal Rate of Return (IRR) calculation, it does better when the calculation includes the risk taken.  See the last screenshot.

Gauss Risk Ratios

Note the nice rise in Jensen’s Alpha over the first few days of March.  This move pushed the slope of the Jensen into positive territory or where we want to be.  In another three months we will have a full year of risk data for the Gauss.

The Treynor is much higher due to the low beta value for the Gauss portfolio.